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November 7, 2007 - 9:42 am

Big correction has already occured in chunks of Western Sydney (I have seen buyers dropping 20-30% on properties purchased in 2004) but is easing back, leaving a trail of broken bodies behind

Short version of my view:

*the boom is largely a function of  (a) massively increased levels of debt, (b) made possible by lenders increasing LVRs and relaxing credit  standards, (c) the expanded risk appetite of mortgage insurers and the international capital markets, and (d)comparatively low nominal interest rates.

*(b) and (c) are essentially reverting back to previous levels

*the size of (a) has made (d) meaningless

*considered together, assuming future buyers won't be able to borrow, in relative terms, what contemporary borrowers can, a significant correction/stagnation will occur.

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November 6, 2007 - 2:19 am

foundation wrote:

Yossarian wrote:

Nix,
The question I would ask is whether you are looking to invest or speculate. That is, is your expectation a quick return your goal or a longer term hold. If the former, I wouldn't consider it an appropriate first time play.

Now thatis good advice! You got a license for that Yossarian?

Hi Foundation,

Though I just noted the typos *d'oh*, beyond the "residential property investment as low-risk magic pudding" views that sometimes prevail on this site, I am always amazed at the extent to which speculation and investment are confused. The amount of advice to first-timers which really amounts to encouraging asset speculation scares the bejebus out of me!

Extraordinary claims require extraordinary evidence and it strikes me that some of the observations that pepper this forum fall into that category and should be put to the test

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November 5, 2007 - 7:55 am

Sulley wrote:

bradje wrote:

Yet fixed interest Home Loans from ANZ and CBA are at 7.99% for 10 years and 15 years respectively.
So does this suggest a disagreement with Steve's diagnosis or can the views be reconciled?

Interestingly, if you look at the 10year cash bond rates – the % at which the banks buy the money to lend you – the banks are buying the 10year bonds at 6.10% (Bloombergs 24-Oct).  So if you think the CBA are doing you a huge favour at 7.99%, think again … they are making a VERY VERY healthy 1.89% on the loan for 10 years!!!! That works out to be an awful lot of money over 10 years!!

The 3yr bond rate is about 6.75%, so the shorter fixed term mortgages are far less profitable!

Cheers
Andre

Sulley,

If you're talking government bonds, isn't that essentially what the government will pay you as interest, rather than what banks are raising money with. Presumably, if you have a government-guaranteed bond with an implied yield of say 6.20%, you would want a good deal more from somebody less stable….. like a Bank?

A better measure would be the Bank Bill Swap Rate , which is the rate that bank's lend to each other. As an example, the 3 year bank swap rate today is 7.39% and the the 5 year rate 7.32%!

There's your problem!

As far  as the US economy is concerned…they are potentially in significant poop. I would think the key question for  Oz is to what extent the boom we riding courtesy of the Chinese is dependent on the boom the Chinese are riding couresy of US debt-driven consumer demand. What happens when Jimbo from North Dekota suddenly has negative equity in his property and thinks twice about buying the third 100" plasma for the garage?

While I'm on it, it's also worth remembering that though no-one talks about the current account deficit anymore (remember in the Hawke/Keating years when it was THE economic issue?), in spite of the fact we could probably export pure dirt at the moment and have someone buy it for $100/tonne, we are still importing more junk than we sell. If you're running a current account deficit of biblical proportions in the midst of an export bonanza and then the music stops….

Of course, if we had taken advantage of the most significant boom in living memory by investing in skills, infrastructure and education rather than creating the world's largest election pork barrell, perhaps we'd have plan B……

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November 2, 2007 - 3:09 am

pjk1966 wrote:

The laws in this state where changed in 2000 and it is not possible for agaents or developers to sell property at inflated prices here. Independant valuations determine the price of the property, not a money hungry seller.

Far be it from me to suggest that the good people in the RE industry in Queensland aren't all models of honesty, prudence and charity but:

*if there was a bounty on dodgy property spruikers in QLD, a hunter could still have made a good living post-2000.
*valuations are product of people and data, both of which can be bought, manipulated or mistaken.

A little more difficult since 2000; maybe.
Impossible? Not so much.

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November 2, 2007 - 2:52 am

All,

Nerds in the financial markets are basically saying:

.25 next week
some small chance of another .25 in December but
almost certain of another .50 by June depending on if (when?) the US slides into a recessionary blip.

The 3 Yr inter-bank rate has jumped .30% in the last week or thereabout so I think you'll find mixed rates moving up pretty rapidly in the next little bit.

My guess – headline rate of 9ish percent by June…assume you'll be paying 8.60-8.80% in reality.

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November 2, 2007 - 2:43 am

Wishful,

I would avoid any contract with your parents in which they commit to saying and paying rent for the rest of their life. I am not a lawyer but you run the risk of potentially creating a life tenancy or other equitable interest that may create problems later.

For example, if they are contracting that they will stay and pay for the rest of their life, it would seem to me that your are agreeing to grant them the right to do so. How does one then sell the property should you find yourself in a position where you have to do so. Also, you will find lenders might have an issue in that, should things go pear shaped, how would they sell a property that has a tenant who would claim they have a life-long entitlement to stay in the property?

Risky in my view and a far better approach to understand what the commercial rental return on the property would be and ensure you could continue to afford the property if you had to put it out to the market.

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November 2, 2007 - 2:34 am

Nix,

The deposit bond/off-the-plan scenario got a lot of people into a lot of trouble (particularly) in Docklands some years ago. "Investors" looking to flip the property on completion or (worse) on-sell the contract prior to settlement found themselves holding properties worth less than they paid and in the unexpected position of having to settle deals they didn't intend to. This was largely due to significant amounts of stock coming on to the market at the same time and the high % of the "buyers" who all had the same plan – flip.

In any number of cases they were unable to settle and the developers called in the bond. It is worth remembering that if you fail to settle you will owe the insurer the $.

The question I would ask is whether you are looking to invest or speculate. That is, is your expectation a quick return your goal or a longer term hold. If the former, I wouldn't consider it an appropriate first time play.

FWIW 

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October 31, 2007 - 5:39 am

hschmid wrote:

It's a great way to acquire IP at a discount.

I have had terrific experiences.

We form small JV syndicates to enhance our buying power.

Developers become keen when they have remaining stock and want to fsell off and move on.

Be aware that a discounted price will establish a new valuation precedent.

If u buy $300k IP for say, $250k (cause u bought 8 between u), make sure that the 'discount' is by way of a rebate at settlement not a reduced contract price.

In other words have the sales contract $300K with refund 50K

This way the PUBLIC recorded transaction is $300K and this is critical for valuations now and future.

If  you don't disclose the "rebate" in the loan contract, you are arguably committing fraud in that you will be knowingly representing to the lender that the purchase price is X when, in fact, it is X less whatever you pocket. 

Also, the rebating approach is how developers rip-off investors. They sell the first bunch of properties to associated parties (directors, contractors etc) with an "off contract" rebate, establishing a padded series of comparison sales. When the genuine buyers turn up and get their prospective purchase valued, unless the valuer is savvy to what's going on, they will enter into a transaction under false pretences and, in all likelihood, do their dough.

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October 29, 2007 - 2:47 am

sarajh

I'd have to side with Stuart on this one.

Any financial transaction that begins from a position summarised as "pretty maxed for serviceability" is unlikely to end well, IMHO. The question here is not whether you can increase your borrowings, but whether you should.

Remember, most pundits are talking a further .50% on interest rates this financial year in addition to the .25% the RBA is expected to announce next week.

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October 25, 2007 - 3:17 am

Alternatively, ask yourself the question, "If the bank's valuers are, on the balance of probabilities, correct, do I still like the deal". If so, forum shop until you can get the deal set. If not, find a better deal.

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October 25, 2007 - 3:04 am

The other issue for lenders is the point at which the line is crossed from residential lending to defacto commercial finance. You'll find that some draw the line more conservatively than others.

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October 9, 2007 - 12:34 am

Hmmmm.

It is a sad day indeed when the over-the-top and misleading claims of Wild Wealthy Women are contrasted with the "better quality" of the Secret Books

What reasonable, valid and well-researched claims to the good people at thesecrectvisionbook.com make:

"Become a better person instantly"
"Find the perfect lover"
"Win that lottery"

Self-indlugent New Age woo woo of the highest order.

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October 3, 2007 - 12:39 am

Trakka,

The lender doesn't ask about "liabilities in your name", they ask about "your liabilities". If you have obligations that, however constructed, will come to you should the proverbial hit the fan, you should declare them:

(a) so you're not up for fraud; and
(b) so you don't borrow more than you can reasonably afford.

There is no magic pudding.

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September 17, 2007 - 11:05 pm

suavemechanic wrote:

just watched the show and am  a bit confused ,i want to sell one of my ips now ,but i also  want to  go to america and buy more there …..
how cool was that guys two acre house on the river ?( about to be forclosed on …)
you have to question the logic of retiring  and having a big mortgage ???? i got the impression his equity was zip
am i wrong or is the thing that is fuelling "our " market  the  mining money from china and not cheap credit and easy finance ?
 i always have to jump through hoops
any thoughts ?

If you take anything out of the 4 Corners story, buy Robert Shiller's book (he was they Yale professor talking about the "real estate goes up by 10% year" fallacy.  I've always figured that for every book telling you easy it is to make money through whatever mechanism, you should by one explaining how easy it has been over time to lose your shirt. Balance in all things!

BTW< we're selling stuff to China because they're selling stuff elsewhere. With the US their single largest market, a significant slow-down in the US economy will have a flow on effect here.

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September 17, 2007 - 1:09 am

All,

I would strongly recommend forum members have a look at the 4 Corners story. It is not a question of "if" the sub-prime issue in the US will affect the Oz market – it already has. Investors here have benefited from the globalisation of credit markets in that has allowed the second tier and securitised lenders to push the price of borrowings down and to drag the major Bank's along for the ride. The re-pricing of credit globally (driven out of the US sub-prime issue) is putting the squeeze on both the availability and cost of credit which, over the medium term, will increase borrowing costs.

By way of example, Banks have been able to get wholesale funds (which they, in turn, lend to the rest of us) and about .10% over the official cash rate. Last week, the 90 day bill rate was a whopping .50% over the cash rate. When the cost of the raw materials go up, the Bank's will pass it on by hook or by crook.

As far as investors go, I'll make the call that Lo Doc loans will permanently reprice at something like .50% above where they are now, as the international appetite for that business is gone for the foreseeable future.

Finally, if you don't think the contagion can spread outside of the US, take a butchers hook at what is happening to Northern Rock in the UK…..   http://business.scotsman.com/index.cfm?id=1485112007

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September 12, 2007 - 6:24 am

wealth4life.com,

I think the term "accreditation" might be stretching things…accredited with who, recognised by what?

In any case, not sure a training institution that advertises "7 Free Lessons from Teachers of the Secret" is quite the vibe I would expect from a serious training group.

And that isn't your ad on their website 

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September 7, 2007 - 5:43 am

nigel348 wrote:

Hi All,

My equity ration was fine, but I failed on the income side.  They are also worried about the interest rate rise affecting my repayment ability.

So, should I simply sit around for a few years till my income goes up (ie rent) and then re-finance or should I try another bank?

/quote]

Nigel,

(a) If you have provided the Bank your actual income and they decline, by all means look at another Bank.
(b) Do not be tempted to fudge your income under a Lo Doc scenario because if the Big C was concerned about your ability to repay, it would be with some basis in fact.
(c) Lo Doc lending rates are in the process of moving up as a result of barely functioning international credit markets (and not just rates for new loans) so take whatever rate you are offered,  add .25-50% and then ask yourself how badly you want it.

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September 3, 2007 - 1:47 am

v8ghia,

Not a criticism of RAMs. Made lots of money but that was pre the capital markets melt down and their current funding costs have jumped and the market for their commerical paper narrowed. I was suggesting that they are likely to be a good deal more circumspect about back-dating a fixed-rate now than they might have been in the past.

Always worth remembering that today's profit is a function of yesterdays margins……..

DP

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August 31, 2007 - 6:52 am

FIrst thing would be to review the docs RAMs sent you (contract, letters of offer, post settlement stuff or whatever). If they say variable, rather than fixed, methinks you might have a problem.

Always pays to read the gear, though many of us don't.

Otherwise I think you're in to a he-said-she-said exercise with your broker and given where RAMs are at the moment I don't think they will be keen to hand over cash or deal on rate.

If you want to go the broker, check which (if any) disupute resolution scheme they are with and prepare your complaint.

http://www.creditombudsman.com.au/
 

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August 30, 2007 - 5:44 am

Interesting….

http://www.anz.com.au/aus/shares/presentations/pdf/EarningsUpdate300807.pdf